Does A Reverse Mortgage HECM Make Sense For You?

Older Americans have many things to consider when entering retirement. Perhaps the most common worry is that you may not have enough funds to sustain the quality of life you expect during retirement. Another common concern is whether to cash in your Social Security benefits early or to try and wait longer so you can access more money in the long run.

If you only have a Social Security check to fall back on, the worries can mount. But Social Security is not the surefire nest egg that once was. If something comes up, like unforeseen medical bills or other costs, you could find yourself scrambling for cash. Thankfully, retired Americans that own their home actually do have some other options. One of the more popular ones is called a reverse mortgage HECM home loan.

A reverse mortgage comes in three types: single purpose, proprietary reverse mortgage and home equity conversion mortgage (HECM). The last type is the most common type that’s used by homeowners.

If you find yourself hurting for cash or uncertain as to how you will fund your latter years, it is a viable consideration. In the reverse mortgage HECM scenario, you need to have ample equity to borrow against. There are some other stipulations, too. These include demonstrating that you can pay property taxes, insurance and home upkeep and keeping the home as your primary residence. In order to qualify, you need to meet these preconditions and be at least age 62 or older.

The good news is that you don’t have to worry about your credit rating or income, which is especially helpful if you are living on your monthly Social Security check. Instead, a reverse mortgage is a way for you to access your home equity by borrowing against it at market mortgage interest rates.

Be aware that there are standard fees that apply that can be financed into the loan in most cases. These include an origination fee, any lender fees and appraisal costs, to name a few. On the upside, a loan such as this does not have to be repaid until after you pass away. Also, your estate won’t ever owe more than the fair market value of the home, when you took out the loan, so the loan can’t ever be under water.

Taking out a home loan like this is a serious consideration. That’s why the federal government mandates that you undergo third-party credit counseling beforehand. In the end, it’s nice to know that you do have some options for getting your finances in order if you find yourself struggling to make ends meet during your golden years.